Topic: Apple Valuation
You may be. Our SSG projects 10% growth (probably a lot less than AAPL will achieve), uses the average of the lowest 5 of 10 PE ratios (rather than the average of the last 5), and TTM EPS of 35.11. We have a buy up to slightly more than $600.
How do you arrive at a hold?
In a message dated 3/6/2012 11:24:34 A.M. Eastern Standard Time, email@example.com writes:
I find it interesting to see Apple being held by more clubs
I have a p/e of 21 using an earnings estimate of $50 in five
years, which is slightly higher than your earnings growth
rate. During the years 2007-2011 the P/E has been trending
Even as their earnings have accelerated, the P/E has been
contracting. What will drive it to a higher P/E in the
future, especially since everyone that has wanted to own
Apple probably already has it?
I've attached a PDF of my SSG. Feel free to critique it.
Hi Mr. Chastain,
Great analysis. I agree with your premise of AAPL being a stock still headed upwards.
At the end of your post you said, "The stock price took a hit, but then recovered and soared. That is the way with AAPL (and actually most of my stocks). To me, those are buying opportunities."
I am just curious as to which other companies you own or would recommend. I'm looking for a couple of good companies that are in a position where buying on dips is smart.
L. Dale Caldwell
Thanks for the thoughtful feedback Roy.
Yes I do use Valueline's earnings estimates and projected
high price as a guiding influence. By doing so, I am
attempting to remove some of my own emotional judgement from
I do attempt to affirm or deny that these numbers are
plausible as I do the SSG however.
On the P/E side of the equation, I examine both the high and
low P/Es over the last five years to understand the trend.
I feel that the expansion or contraction directions indicate
changes in psychology of investors and how they feel about
On the final premise, I'll pose the following question:
What are the potential new "purchasers" of Apple stock
waiting on? The news has been great, the numbers great, the
outlook great. So what event will need to occur for them to
Once again, thanks for the effort you put into your reply.
Nice to be at a site where your head is not bitten off for
having an opinion that is somewhat contrarian.
On Fri, Mar 9, 2012 at 7:14 PM, Roy Chastain wrote:
> There are tons of people sitting on the fence. Why? I recently saw the
> phrase that AAPL has been penalized by the law of large numbers.
There is something real here. Simon Lack talks about this concept In
The Hedge Fund Mirage, which is a very good book, btw. With hedge
funds, the problem of scale is very real. With product or service
companies, the issue is slightly different.
Apple is very good. I mean Apple is AWESOME. I was in an Apple store
this week in Boulder. The store is less than 10K sq ft, and had 25
blue-shirted staff in it. I can walk in pretty much any time of the
day, and there are more customers than that. And, this is in Boulder,
where the other stores are virtually empty. Apple grosses $14B in its
physical stores. That's $5.6K/sq ft. The closest store to that is
Tiffany at $3K/sq ft. Costco grosses $81B, but only gets $1K/sq ft.
However impressive that is, what's more impressive is that Apple's
physical store sales went up by 50% over the prior year 2010(?).
Here's the chart which was quoted all over the place on 8/24/11:
Even if it only did half as good as Tiffany, that would still be
incredible, since most of its revenue is generated elsewhere. In
other words, it is by far the most successful bricks and mortar
retailer in the US, and that's not even its main business model. This
growth has happened in an incredibly bad economy.
> There also has been a lot of discussion
I think that says it all: discussion. People are baffled by Apple's
success. I remember sitting at a table many years ago and saying,
"While Apple is very successful, I have to question the concept that
you think it is going to go up by 10x". It was unthinkable, but
that's exactly "the problem" with Apple: its success has been
completely unimaginable. You can't just sit there and say, "It'll go
up by 10x" today, but there's about a 50% chance you'd be wrong.
It's very important to realize that Apple is not monopoly, like
Microsoft and Google. Indeed, they are just the opposite. They are
just like Tiffany: they sell exclusive items at a huge premium. They
still have a small share of the PC and phone markets. They do have a
60% share of the tablet market, but essentially, Apple created that
market. While Android is growing, Apple is, too, because Apple
reinvented the smart phone market.
> While these
> doubters probably will never buy AAPL, their doubts influence others who
> might buy.
I don't think anybody is affecting Apple's growth except Apple. Even
Steve Jobs' s death didn't put a dent in their growth. If any one
event would affect people's future impressions of Apple, that would be
it, and probably, it increased the growth, because of the two major
books and countless memorials to The Great Man. Despite the fears,
Jobs managed his own exit quite well. As with all Apple news, it was
mixed with selected rumors and announcements. Tim Cook is looking
pretty strong as CEO. This surprised me as much as anything else in
Apple's history. They turned Jobs's death into a marketing coup.
> p.s. I still rely in large part on Value Line, but I am somewhat troubled
> in that some of VLs analysts give conflicting information. Thus, I use
I think VL's analysts are humans, and in fact, bureaucrats. They have
to churn out analyses at too great a rate, and they don't have skin in
the game. Follow the money. Who of the big investors is buying
Apple, and why, or why not? There are some pretty big numbers
attached to pretty big names in this list:
You won't find me in that list. ;-) I don't own AAPL except
indirectly through SPY. I'm not an active investor except in my own
companies. I just find their success fascinating. I use a lot of
their products so I tend to keep abreast of their "goings on". What
will happen in 10 years is anybody's guess, but I'm pretty sure they
aren't going away in the next 5, and look for a great new innovation
in the new few years.
Ã â¦There also has been a lot of discussion that sitting on such a huge amount of cash is bad for the company. (Huh??)
I view the discussion a bit differently.Â As Warren Buffet says so well, the job of management is to allocate the company resources where needed.Â So, if they have an adequate reserve for future needs, if they do not see either an expansion of the business assets, or an acquisition, why shouldnât the company distribute that to shareholders?Â Buffett makes it clear that Berkshire Hathaway may find new opportunities for the cash as investments.Â The only answer Steve Jobs ever gave for the cash hoard was that this kept Apple strong.Â The recent discussions are truly a test leadership and a quest to understand the direction Tim Cook will take with the company.Â
Maybe Al Gore, as a member of the Apple Board of Directors, can invent the Internet again so Apple can invest. ;-)